KVS Economics question bank 2015 16

KENDRIYA VIDYALAYA SANGATHAN KOLKATA REGION

CLASS - XIIECONOMICS

QUESTION BANK

OF

PROBABLE QUESTIONS FOR 2015-16

PATRON

Shri N. R. Murali

1

Dy. Commissioner, KVS Kolkata Region

CONVENERS

Shri T. Brahmanandam,

Assistant Commissioner, KVS Kolkata Region

Shri G. C. Gorain


Shri M. D. Sahu


Team Leader

Mr. V. K. MathpalPrincipal

KV Command Hospital Kolkata

Sl. No.

Names of the Project Members

Designation

Kendriya Vidyalaya

Units Prepared

1 Mrs. Nandita Maity PGT (Eco) Cossipore Introduction Forms of market and price

determination under perfect competition with simple applications

2 Mrs. Dipika Ghosh PGT (Eco) OF Dum Dum Consumer’s equilibrium & Demand3 Dr. K

ChattopadhyayPGT (Eco) Barrackpore

Army Producer behavior & supply

4 Mr. M. M. Khuntia PGT (Eco) Kharagpur IIT National Income and related aggregates

5Mrs. S Chatterjee

PGT (Eco)Ballygunge

Determination of income and employment

Balance of Payments6 Indrani Segupta PGT (Eco) Salt Lake No. 2 Money and Banking

Government budget and economy

Index

Pages

Set –I Set –II

2

Unit Units (Questions repeated 3 or more times )

(Questions repeated one or

two times )1 Introduction 4 19-21

2 Consumer’s equilibrium & Demand 4-7 21-24

3 Producer behavior & supply 8-9 24-26

4 Forms of market and price determination

under perfect competition with simple

applications

9-10 26-28

5 National Income and related aggregates 11-16 28-36

6 Money and Banking 16 36-37

7 Determination of income and employment 16-17 38-39

8 Government budget and economy 17 40-43

9 Balance of Payments 17-18 43-44

SET-I: (Repeated 3 or more times)

UNIT 1: Introduction

3

1 Mark Questions1. Define microeconomics.2. Give two examples of microeconomic variables.3. Why does an economic problem arise? 4. Define marginal rate of transformation or marginal opportunity cost.5. Give the meaning of opportunity cost.6. What is an economy?7. Why is production possibility curve concave to the origin?

3/4 Marks Questions

1. What is an economic problem? Why does it arise? 2. Explain the central problem” What to produce” with the help of PPC.

OR Explain the central problem of the choice of products to be produced.3. Explain the central problem of “choice of technique” or “how to produce”.4. Explain the central problem of “for whom to produce” with the help of an example.

OR Explain the central problem of distribution of income.5. Why is a production possibility curve concave to the origin?6. State the central problem of an economy.7. Explain the meaning of opportunity cost with the help of production possibility schedule.

UNIT 2: Consumer’s Equilibrium and Demand1 Mark Questions

1. Define utility.2. Define total utility.3. Define marginal utility.4. How is total utility derived from marginal utilities?5. Stare the law of diminishing marginal utility.6. State the law of equi-marginal utility. 7. What happen to TU when MU is positive?8. What happen to TU when MU is Zero?9. What happen to TU when MU is negative?10. What will you say about MU when TU is maximum? 11. What is meant by consumer’s equilibrium?12. State the condition for consumer‘s equilibrium given by the utility approach (in case of one and two commodities).13. Define In difference curve

4

14. What do you mean by indifference map?15. Define Budget Line.16. What is meant by budget set?17. State two commodities of consumer’s equilibrium attained through Indifference Curve approach.18. Give the reason behind a convex Indifference Curve.19. Why two Indifference Curves cannot intersect each other.20. Define Marginal Rate of Substitution of good X for Y.21. Give meaning of equilibrium.22. Define demand by a consumer.23. What is law of demand?24. Define demand schedule.25. What is demand function?26. What do you mean by substitutes? Give example of two goods which are substitutes of each other.27. What do you mean by complements? Give example of two goods which are complements of each other.28. What is a good called inferior good?29. What are normal goods? Give some example.30. What is decrease in demand/increase in demand?31. Define change in quantity demanded.32. Define change in demand.33. Define market demand of a commodity.34. What causes a movement along the demand curve?35. What cause upward movement along a demand curve?36. What cause downward movement along a demand curve?37. Mention one factor that causes a rightward shift of the demand curve.38. Mention one factor that causes a leftward shift of the demand curve.39. When does a demand curve shift?40. Mention one determinant of demand for a commodity other than price.

3/4 Marks Questions

1. What happens to the demand of d good when consumer’s income changes? Explain.2. Explain the changing demand of a good on account of change in prices of the related goods?

5

3. A and B are substitute goods. Explain the effect of rise in price of A on demand for B.4. Explain the difference between inferior good and a normal good.5. Explain why indifference curve is convex to the origin.6. Define an indifference curve, why it is convex to the origin.7. Why indifference curve is downward sloping?8. A and B are complimentary goods. Explain the effect of rise in price of A on demand for B.9. What is meant by movement by the demand curve? 10. State three reasons behind increase in demand?11. Define an indifference map. Explain why an indifference curve to the right shows higher utility level.12. Give three causes of leftward shift in demand curve.13. State three properties of indifference curve?14. Define a budget line. Explain why is it a straight line.15. Explain the significance of minus sign attached with elasticity of demand. What does it indicate?16. Explain the relationship between price and total expenditure. How elasticity of demand is determined through this approach.17. A good is an inferior good for one and at the same time normal good for another consumer. Do you agree? Explain with the help of an example.18. Explain the law of diminishing marginal utility with the help of a total utility schedule.19. Explain the condition of consumer’s equilibrium in case a consumer is buying single commodity.20. A new steel plant comes up in Jharkhand. Many people who were previously unemployed in the area are now employed. How will this affect the demand curve for colour TVs in the region?

6 Marks Question

1. Distinguish between increase in quantity demand and increase in demand with the help of a diagram.2. Explain the condition of consumer is equilibrium with the help of indifference curve analysis.3. A consumer consumes only two goods. Explain his equilibrium condition with the help of utility approach.4. State the factor that causes a rightward shift of demand curve of a commodity.5. Explain briefly any three factors which lead to decrease in demand6. Explain with the help of diagram the effect of the following changes on the demand of a commodity: (i) A fall in the price of substitute goods. (ii) A fall in the income of its buyer.7. Explain with the help of diagram the effect of the following changes on the demand of a

6

commodity: (i) A fall in the price of complementary goods.

(ii) A rise in the income of its buyer.8. Explain with the help of diagram the effect of the following changes on the demand of a commodity: (i) A rise in the price of complementary goods. (ii) A rise in the price of substitute good.9. Explain with the help of diagram the effect of the following changes on the demand of a commodity(i) An unfavorable change in taste of the buyer for the commodity. (ii)A fall in the income of its buyer if commodity is inferior10. Define market demand. State the factors that affect it.11. Explain the law of demand and the reason behind it.12. Explain the effect of the following on the demand of the good:(i) Change in the income of the consumer(ii) Change in the price of the substitute goods.13. Explain the effect of increase in income of the buyer of the good ‘X’ on the demand of ‘X’. Use diagram showing demand for good ‘X’ on the x-axis and its price on y-axis.14. A consumer consumes good ‘X’. Explain the effect of fall in the price of related goods on the demand of ‘X’. Use diagram showing demand for good ‘X’ on the x-axis and its price on y-axis.15. Explain the term ‘change in demand ‘and represent the same graphically. Also state any three factors responsible for change in demand.16. Explain the three factors other than the price of a commodity that affect its demand.17. Explain consumer’s equilibrium in case of a single commodity with the help of utility schedule.18. A consumer consumes only two goods. Explain his equilibrium with the help of utility approach.19. How is equilibrium achieved with the help of indifference curve approach?20. Explain the concept of Marginal Rate of Substitution with the help of schedule and diagram. Give reasons behind diminishing MRSxy.21. Explain different situation/condition under which Budget Line Shifts. Use diagram.

Unit 3: Producer behavior & supply1 Mark Question

1. Define marginal revenue.

7

3/4 Marks Questions

1. State whether the following statement are true or false. Justify your answer. a. Average product rises only where marginal product rises.b. Total cost rises only when marginal cost rises

2. Given below is the cost schedule of a firm. Its TFC is Rs. 120/-. Calculate MC & AVC at each level of output.

Output(units) 1 2 3AC 160 96 80

3. Explain the relation between MR & AR when a firm is able to sell more quantity of output-a. At the same price.b. Only by lowering the price.

4. Explain the Geometric method of measuring price elasticity of supply. Use diagram.5. Explain the following using diagram:-

a. Unit elastic supply curve.b. Less elastic supply curve.c. More elastic supply curve.

6. Answer the following-a. What is the effect of fall in the price of inputs on supply of a commodity?b. State the law of diminishing returns to a factor.

7. Why is MR < AR under monopoly and monopolistic competition market?8. At a price of Rs. 5/- per unit of commodity ‘A’, the TR is 800. When its price rises by 20% TR

increases by 400.Calculte its price elasticity of supply.9. Total Revenue is Rs. 400/- when the price of the commodity is RS. 2/-per unit when price

rises to Rs. 3/- per unit, the quantity supplied is 300 units. Calculate price elasticity of supply.

10. On the basis of information given below, determine the level of output at which the producer will be in equilibrium use the marginal cost – marginal revenue approach. Give reasons.

6 Marks Questions

1. Explain the likely behavior of TP & MP when for increasing production only one input is increased while all other inputs are kept constant.

2. Explain the geometric method of measuring price elasticity of supply.

8

3. Distinguish between change in supply and change in qty. supplied?4. Explain how equilibrium level of output of a firm is determined through MR and MC

approach.5. Explain the three stages of production when one factor input is variable. Use diagram.

UNIT 4: Forms of market and price determination under perfect competition with simple applications

1 Mark Questions

1. Define monopoly.2. Under which market form a firm is a price taker?3. Draw demand curve of a firm under perfect competition.4. In which market form is there product differentiation? 5. What is equilibrium price?6. What is price floor?7. What is price ceiling?

3/4 Marks Questions

1. State 2 or 3 features of perfect competition.2. Explain large number of buyers and sellers feature of perfect competition.3. Explain free entry and exit of firms feature of perfect competition.4. Explain homogeneous products feature of perfect competition.5. State the features of a monopoly market.6. State any 3 features of monopolistic competition.7. Explain product differentiation feature of monopolistic competition8. Give any 3 points of difference between monopoly and monopolistic competition.9. How is the equilibrium price determined under perfect competition? Explain with help of a

diagram.10. Explain the chain effects of increase in demand on price, demand and supply of a good .use

diagram.11. Explain the chain effect of increase in supply/ decrease in supply on its equilibrium price

and quantity.12. How will an increase in the income of the buyers of an inferior good affect its equilibrium

price and quantity?13. Explain the effects of maximum price ceiling on the market of a good.14. What are the effects of price floor on the market of a good ? Use diagram.15. What is maximum price ceiling ? On what type of goods is it normally imposed. Use

diagram.

9

6 Marks Questions

1. Market for a good is in equilibrium. What is the effect on equilibrium price and quantity if both market demand and supply of the good increase in the same proportion? Use diagram.

2. When will simultaneous increase and decrease in both demand and supply not affect the equilibrium price? Explain with the help of diagram.

3. Giving reasons state whether the following statements are true or false:a. A monopolist can sell any quantity he likes at a price.b. When equilibrium price of a good is less than its market price, there will be

competition among the sellers.4. Equilibrium price of an essential medicine is too high. Explain what possible steps can be

taken to bring down the equilibrium price but only through the market forces. Also explain the series of changes that will occur in the market.

5. If equilibrium price of a good is greater than its market price explain all the changes that will take place in the market. Use the diagram.

6. Market for a necessary good is competitive in which the existing firms are earning super normal profits. How can the policy of liberalisation by the government help in making the market more competitive in the interest of the consumers? Explain.

7. What is excess demand/ excess supply for a good in a market? Explain its chain effects on the market for that good. Use diagram.

8. Market for a commodity is in equilibrium. Demand for the commodity decreases .Explain the chain effects of this change till the market again reaches equilibrium. Use the diagram.

9. Market of a commodity is in equilibrium. Demand for the commodity increases Explain the chain effects of this change till the market again reaches equilibrium. Also compare the prices at old and new equilibriums.

10. The supply of good decreases/ increases .Explain the chain of effects of this change on equilibrium price of the good.

UNIT 5: National Income and related aggregates

1 Mark Questions

1. Define macroeconomics2. Give two examples of macroeconomics studies3. What is nominal gross domestic product?

10

4. Define flow variables.5. What are stock variables?6. Define ‘depreciation’7. Define ‘capital goods’

3/4 Marks Questions

1. Calculate 'value of output' from the following data:

(Rs. In crores)

(i) Subsidy 10

(ii) Intermediate consumption 150

(iii) Net addition to stocks (-) 13

(iv) Depreciation 30

(v) Excise duty 20

(vi) Net value added at factor cost 250

2) Calculate 'Net Value added at Factor Cost' from the following data:

(Rs. In crores)

(i) Purchase of raw materials 300

(ii) Import duty 20

(iii) Excise duty 30

(iv) Net addition to stocks 50

(v) Value of output 500

(vi) Depreciation 10

3) How will you treat the following while estimating domestic factor income of India? Give

reasons for your answer.

4) Explain how ‘non-monetary exchanges’ are a limitation in taking gross domestic product as

an index of welfare.

5) Explain how ‘externalities’ are a limitation of taking gross domestic product as an index of

welfare.

6) Giving reasons, explain the treatment assigned to the following while estimating national

income:

(i) Contribution to provident fund by the employers

11

(ii) Free dress provided to nurses by the hospital

7) Calculate Personal Disposable Income from the following data:

(Rs. In crores)

i) Personal taxes 60

ii) Net National Product a factor cost accruing to the private sector 600

iii) Undistributed profits 10

iv) National debt interest 50

v) Corporation tax 100

vi) Net current transfers from the rest of the world (-) 20

vii) Current transfers form government 30

8) Distinguish between GNP and NDP

9) Distinguish between “real” gross domestic product and “nominal” gross domestic product.

Which of these is a better index of welfare of the people and why?

10) From the following data calculate ‘Gross Value Added at Factor Cost’ : Items (Rs. In Crore)

(i) Sales 8,000(ii) Change in stock 100(iii)

Subsidies 200

(iv) Consumption of fixed capital 300(v) Intermediate consumption 5,500(vi) Rent 500

11) Explain the distinction between “domestic product” and “National product” on the basis of

concepts of resident and domestic territory.

12) Explain the Income method of estimating National Income.

13) Explain the expenditure method of estimating National Income.

(Rs. In crores)

(i) Compensation of employees 2,500

(ii) Private final consumption expenditure 2,800

12

(iii) Profits 500

(iv) Employers' Contribution to social security schemes 200

(v) Rent 200

(vi) Mixed income of self-employed 450

(vii) Government final consumption expenditure 800

(viii) Net domestic capital formation 400

(ix) Change in stock 60

14) Distinguish between intermediate products and final products. Give examples.

i) Remittances from non-resident Indians to their families in India.

ii) Rent paid by the embassy of Japan in India to a resident Indian.

Iii) Profits earned by branches of foreign bank in India.

15) Calculate net value added at factor cost from the following data:

(Rs. In crores)

i) Purchase of machinery to be used in the production unit 100

ii) Sales 200

iii) Intermediate costs 90

iv) Indirect taxes 12

v) Change in stock 10

vi) Excise duty 6

vii) Stock of raw material 5

16) Explain how distribution of gross domestic product is its limitation as a measure of

economic welfare.

6 Marks Question

1. How will you treat the following while estimating national income of India?

i. Dividend received by an Indian from his investment in shares of a foreign company.

ii. Money received by a family in India from relatives working abroad.

iii. Interest received on loan given to a friend for purchasing a car.

2. From the following data calculate national income by (a) income method, and (b)

expenditure method:

13

3. Calculate (a) ‘Net Domestic Product at Factor Cost’ (b) ‘Private Income’ from the following:

(Rs. In crores)

i) Domestic product accruing to government 300

ii) Wages and salaries 1000

iii) Net current transfers to abroad (-) 20

iv) Rent 100

v) Interest paid by the production units 130

vi) National debt interest 30

vii) Corporation tax 50

viii) Current transfers by government 40

ix) Contribution to social security schemes by employers 200

x) Dividends 100

xi) Undistributed profits 20

xii) Net factor income to abroad 0

4. Find out (a) national income and (b) net national disposable income:

(Rs. Crore)

i) Factor income from abroad 15

ii) Private final consumption expenditure 600

iii) Consumption of fixed capital 50

iv) Government final consumption expenditure 200

v) Net current transfers to abroad (-) 5

vi) Net domestic fixed capital formation 110

vii) Net factor income to abroad 10

viii) Net imports (-) 20

ix) Net indirect tax 70

x) Change in stocks (-) 10

14

5. Find (a) Net National Product at Market Price and (b) Gross National Disposable Income:

(Rs. Crore)

i) Wages and Salaries 700ii) Rent 100iii) Net current transfers to abroad 10iv) Net indirect tax 70v) Royalty 50vi) Profits 300vii) Net factor income to abroad (-) 20viii) Consumption of fixed capital 120ix) Social security contribution by employers 60x) Social security contribution by employers 40xi) Interest 400

6. Describe the steps involved in the estimation of national income by value added method. State any two precautions that must be taken while estimating national income by this method.

7. Calculate ‘Net National Product at Factor Cost’ and ‘Private Income’ from the following:

Items (Rs. In Crore)

(i) National debt interest 60

(ii) Wages and salaries 600

(iii) Net current transfers to abroad 20

(iv) Rent 200

(v) Transfer payments by Government 70

(vi) Interest 300

(vii) Net domestic product at factor cost accruing to government 400

(viii) Social security contribution by employers 100

(ix) Net factor income paid to abroad 50

(x) Profits 300

8. Calculate the Gross National Product at Market Price and Personal Income:

Items (Rs. In Crore)

(i) Wages and salaries 800

(ii) Personal tax 150

15

(iii) Operating surplus 200

(iv) Undistributed profits 10

(v) Social security contributions by employers 100

(vi) Corporate Tax 50

(vii) Net factor income to abroad (-)20

(viii) Personal disposable income 1,200

(ix) Net direct tax 70

(x) Consumption of fixed capital 30

(xi) Mixed income of self-employed 500

(xii) Royalty 9

UNIT 6: Money and Banking

3/4 Marks Questions

1. Explain the significance of” store of value” functions of money.2. Explain the significance of the “unit of account” functions of money.3. Explain “banker to the government” functions of the central bank. 4. Explain “government’s bank” function of the central bank. 5. Explain the “lender of the last resort” function of the central bank. 6. Explain the credit creation role of commercial banks with the help of a numerical example. 7. Explain “bankers’ bank and supervisor” function of the central bank. 8. What is bank rate? How is it used by the central bank to control credit creation by

commercial banks?9. Explain the “banker’s bank” Function of the central bank. 10. Explain the “standard of deferred payment “function of money. 11. Explain the “currency authority” function of central bank. 12. Explain the “bank of issues” function of the central bank.

UNIT 7: Determination of income and employment

1 Mark Questions

16

1. Define AD

3/4 Marks Questions

1. When is an economy in equilibrium ? Explain with the help of S – I function. Also explain the changes that take place in an economy when the economy is not in equilibrium. Use diagram.

2. Outline the steps required to be taken in deriving the Consumption Curve from the given Saving Curve. Use diagram.

6 Marks Question

1. Explain national income equilibrium through AD – AS. Use diagram. Also explain the changes that take place when the economy is not in equilibrium.

2. Explain the meaning of Under employment equilibrium. Explain two measures by which full-employment can be reached .Explain the concept of inflationary / deflationary gap. State two measures by which these can be corrected.

UNIT 8: Government budget and economy

1 Mark Questions

1. What is a government budget?2. Define fiscal deficit.

3/4 Marks Questions

1. Distinguish between Revenue receipts and Capital receipts in a government budget. Give an example of each.

2. Distinguish between expenditure into two Revenue expenditure and Capital expenditure in government budget. Give an example of each.

3. How can budgetary policy be used to reduce inequalities of income.4. Explain the role the government can play through the budget in influencing allocation of

resources.5. Explain with help of suitable examples the basis of classifying taxes into direct and indirect

taxes.

17

UNIT 9: Balance of Payments

1 Mark Questions

1. Define foreign exchange rate.2. What is floating exchange rate ?3. What is meant by BOP ?4. Give the meaning of balance of trade. 5. State four sources of demand for foreign exchange.6. Why does demand for foreign exchange rise when its price falls?7. State four sources of supply of foreign exchange.8. Name the categories of transactions recorded in capital account of BOP .9. Name the categories of transactions recorded in the current account of BOP.10. What is current account deficit in balance of payment?

18

SET-II: (Repeated 3 or more times)

UNIT 1: Introduction

1 Mark Questions1. What is microeconomics all about?2. Define macroeconomics.3. Give one point of difference between micro and macroeconomics.4. Give one example each of micro and macroeconomics.5. Give one reason why macroeconomics and microeconomics are interdependent.6. Why is the study of consumer’s equilibrium a subject matter of microeconomics?7. What gives rise to the central problems of an economy?8. Give two reasons for the problem of choice.9. State two characteristics of the economic resources which give rise to economic problem.10. What is meant by economising of resources?11. What is the meaning of the problem “for whom to produce”?12. Define production possibility curve.13. What does a rightward shift of PPC indicate?14. Unemployment is reduced due to the measures taken by the government. State its

economic value in the context of PPC .15. The government has started promoting foreign capital. What is its Economic value in the

context of production possibility frontier?16. State two characteristics of resources.17. Why is the study of the problem of unemployment in India considered a macro economic

study?18. Is the study of general price level a macro economic study?19. Is the study of cotton textile industry a macro economic study or a micro economic study?

3/4 Marks Question

1. A shift from actual level of output to the potential level of output is not iindicated by shift in PPC to the right. Comment.

19

2. In case technology remains constant, what option do we have to raise the level of output? Give reason in support of your answer.

3. Labour absorbing technology is given up in preference to capital –intensive technology. State its economic value in the context of production possibility frontier for the domestic economy.

4. The government offers subsidy on the mining of coal. What is its economic value in the context of production possibility curve?

5. Explain the concept of marginal opportunity cost with the help of a PPC schedule.6. Since area under cultivation cannot be increased, the government has decided to use

capital-intensive technology in agriculture. What is its economic value in the context of PPC?

7. What will likely be the impact of large scale inflow of foreign capital in India on PPC and why?

8. What will be the impact of “Education for All Campaign” on the PPC of the Indian economy and why?

9. What is likely to be the impact of efforts towards reducing unemployment on the production potential of the economy? Explain.

10. What is likely to be the impact “Make in India” appeal to the foreign investors by the Prime Minister of India, on the production possibilities frontier of India? Explain.

11. What will likely be the impact of large scale outflow of foreign capital on production possibilities curve of the economy and why?

12. What will be the impact of recently launched “Clean India Mission “on the production possibilities curve of the economy and why?

13. Why is a production possibilities curve downward sloping? Explain.14. Large number of technical training institutions have been started by the government. State

its economic value in the context of production possibilities frontier.15. Production in an economy is below its potential due to unemployment. Government starts

employment generation schemes. Explain its effect using PPC.16. What does increasing marginal opportunity cost along a PPC mean?17. How is PPC affected by unemployment in the economy? Explain.18. Explain how a PPC is affected when resources are inefficiently employed in an economy.19. What is opportunity cost? Explain with the help of a numerical example.20. Explain the reasons that give rise to an economic problem21. Giving suitable examples, explain the meaning of microeconomics and macroeconomics.

OR Distinguish between microeconomics and macroeconomics. Give examples.22. Draw a PPC and show the following situations on the diagram:

a. Full-employment of resources b. Underutilisation of resources c. Growth of resources

23. Draw a production possibility curve. What does a point below this curve indicate?24. Define and draw a PPC. What does the movement along this curve show?

20

25. Using a diagram to explain what will happen to the PPC of Bihar if the river Kosi causes widespread floods?

26. Distinguish between a centrally planned economy and a market economy.

27. Giving reason comment on the shape of PPC curve based on the following scheduleGood X(units) 0 1 2 3 4Good Y(units) 10 9 7 4 028. Giving reason comment on the shape of PPC based on the following schedule:Good X (units) 0 1 2 3 4Good Y (units) 8 6 4 2 029. Giving reason comment on the shape of PPC based on the following schedule:Good X (units) 0 1 2 3 4Good Y (units) 20 18 14 8 0

30Good X (units) 0 1 2 3 4Good Y (units) 30 27 21 12 031.Good X(units) 0 1 2 3 4Good Y(units) 16 12 8 4 032.

Good X(units) 0 1 2 3 4Good Y(units) 8 6 4 2 0

UNIT 2: Consumer’s Equilibrium and Demand1 Mark Questions

1. What do you mean by consumer’s equilibrium in case of two commodities?2. Mention any two determinants of demand other than price.3. Why does consumer buy more of a commodity at a given price?4. Why does consumer buy less of a commodity at a given price?5. What do you understand by substitute goods?6. Define inferior goods.7. Define complementary goods.8. Mention two exceptions of Law of demand.

21

9. If the demand for goods Y increases as the price of another goods X rises, how are two goods related?

10. If the quantity demanded of a commodity X decreases as the household income increases, what type of goods is X?

11. What happens to the demand for a commodity, if the price of its substitute falls?12. What will happen to the demand for a commodity, if the price of its complementary goods

changes?13. Give the meaning of normal goods and inferior goods.14. State any one factor that causes an increase in the demand for a commodity.15. Define demand schedule.16. Define price elasticity of demand.17. What is unit elastic demand?18. When is the demand called elastic?19. When is the demand called inelastic?20. Why is price elasticity of demand always negative?

3/4 Mark Questions

1. Define utility. Describe the Law of diminishing marginal utility.2. What is meant by consumer’s equilibrium? State its condition in case of a

single commodity.3. ‘X’ and ‘Y’ are substitute goods. Explain the effect of a fall in the price of X on

the demand of Y.4. State the total expenditure method of measuring price elasticity of

demand of a commodity.5. Explain the effect of rise in the prices of related goods on the demand of a

good.6. State any three/four causes of increase in demand.7. State any four causes of decrease in demand.

8. Define demand and explain factors affecting demand.9. Explain the Law of demand with its assumptions.10.Distinguish between expansion in demand and increase in demand.11.Explain the factors that affect the market demand of a commodity.12.With the help of suitable illustration bring out the difference between

contraction and decrease in demand.13.Explain the reason for the inverse relationship between the price of a commodity

and the quantity demanded of it.14. How is the demand of a commodity affected by a fall in the price

of other commodity? Explain.15. Explain the Law of demand with the help of schedule and diagram.

22

16. State any three causes of rightward shift of demand curve.17. State any three causes of leftward shift of demand curve.

18. Draw the demand curves when:a) Ed = 0 b) Ed = ∞ c) Ed = 1

19. What do you understand by price elasticity of demand? State thefactors that influence it.

20. Explain briefly three factors determining price elasticity of demand.21. Discuss the Point Method of measuring price elasticity of demand.22. Discuss the Percentage Method of measuring price elasticity of demand.23. Draw the demand curves when:

a) Ed = 1, b) Ed > 1, c) Ed < 1.

24. When price of a good falls by 10 percent, its quantity demand rises from 40 units to 50 units. Calculate price elasticity of demand by percentage method.

25. Price of a good falls from Rs.6 to Rs.3 per unit. As a result itsdemand rises by 50 percent. Find out price elasticity of demand.

26. A consumer buys 20 units of a good at Rs.10 per unit. When its price falls by 10% its demand rises by 15%. Find out Ed and state the nature of elasticity.

27. A consumer buys 50 units of a good at a price of Rs.10 per unit.When price falls to Rs.5 per unit he buys 100 units. Find out Ed by total expenditure method.

28. When the price of a commodity is Rs.5 per unit, the expenditure over it is Rs.500. Due to increase in its price to Rs.6 per unit the expenditure on it decreases to Rs.450. Find out Ed by percentage method.

29. The co-efficient of price Ed of a commodity is 0.5. When its price is Rs.10 per unit, its quantity demanded is 40units. If the price falls to Rs.5 per unit, how much will be its quantity demanded?

30. Price elasticity of demand of a good is (-)1. 60 units of this good is demanded at price Rs.8 per unit. At what price will 45 units be brought?

6 Marks Question

1. Explain the condition of consumer’s equilibrium in case of a single commodity) with the help of a numerical example.

2. Distinguish between the following:

23

a. Normal good and inferior goodb. Marginal utility and total utilityc. Individual demand schedule and Market demand schedule

3. Define demand and explain the factors affecting demand of a commodity.4. Why does demand curve slope downward?5. State the effects of the following changes for a commodity by an individual household.

a. A rise in the money income of householdb. A fall in the price of other commodity.

6. Explain any three factors, other than price of the commodity that affect its demand.7. Explain with the help of diagrams the effect of the following changes on the demand of a

commodity.a. A fall in the price of substitute.b. A fall in the income of the buyer.

8. How is the demand of a commodity affected by the change in the income of the buyer? Explain with the help of diagram.

9. Explain the Law of demand and the reasons behind it. Use diagram.10. Explain the factors affecting price elasticity of demand.11. Draw a straight line demand curve touching both the axis. Locate EP at different points.12. State three causes each for a right ward shift and left ward shift of demand curve.

Unit 3: Producer behavior & supply

1 Mark Question

1. Improvement in technology lead to a) Increase in supplyb) Decrease in supplyc) Perfect competitiond) Contraction of supply2. Define Marginal Product.3. What happens to TR when MR IS zero?4. Revenue per unit of the product sold is equal to?5. The cash payments which the firms make to outsiders for their services is known as-a) Implicit costb) Money costc) Explicit costd) Social cost

24

6. Define marginal cost.7. What is MR?

8. Choose the right option when AC= MC, the AC is –a) Minimum and constantb) Equal to zeroc) Maximum and constantd) Equal to TC9. If TR is increasing at a diminishing rate, what will be the behavior of MR.10. When TR increases at an increasing rate MR will be?11. Define Revenue.12. In which market from average revenue is equal to marginal revenue?13. The total cost at 5 units of output is Rs.30/-. The fixed cost is Rs. 5/-. The average variable cost at 5 units of output is-a) Rs.25/-b) Rs. 5/-c) Rs.6/-d) Re. 1/-14. What policy initiative can the Govt. undertake to increase the demand of milk in the country? Mention any one.15. What is meant by cost in economics?

3/4 Marks Question

1. State the difference between explicit cost and implicit cost.2. Explain why MC curves are U shaped.3. Draw TVC, TC and TFC curves in single diagram.4. Explain the relationship between MC and AVC. 5. Explain the relation between AP and MP.6. When the supply of a commodity rises by 10% , its supply rises by 40 units, its elasticity of supply is 1. Calculate its supply at the original price.7. What changes in TR will result in –i) A decrease in MR?ii) An increase in MR?B) What will happen to AR when –i) MR > ARii) MR < AR8. Explain the relationship between AC and MC with the help of a diagram.

25

9. Give reasons and state whether the following statements are true or false –a) When TP increases at a diminishing rate, MP increases.b) When MP is negative, TP falls.6 Marks Question

1. What are the different phases in the behavior of TP in the law of variable proportions? Use diagram also give reasons behind the behavior in each phase.

2. Explain the law of variable proportions with the help of TP and MP curves.3. Calculate TVC and MC from the following cost schedule of a firm whose TFC are ` 12.

Output(Units) 1 2 3 4

TC(`) 20 26 31 38

4. Explain the distinction between “change in quantity supplied” and “change in supply”.5. Explain any two causes of “decrease” in supply of a good.

UNIT 4: Forms of market and price determination under perfect competition with simple applications

1 Mark Question

1. Define market.2. Draw average revenue and marginal revenue curves a firm in a single diagram under monopolistic competition.3. State one characteristic of a perfectly competitive market.4. Define oligopoly.5. Name the characteristics which makes monopolistic competition different from perfect competition.6. In which market demand curve of a firm is perfectly elastic?7. In which market form can a firm not influence the price of the product?8. Under which market form is product homogeneous?9. When is a firm called price maker?10. When is a firm called price taker?11. What is behaviour of average revenue in a market in which a firm can sell more only by lowering the price?

26

12. What is the behaviour of marginal revenue in a market in which a firm can sell any quantity of the output it produces at a given price?13. What is perfect oligopoly?14. What is imperfect oligopoly?15. What is meant by collusive oligopoly?16. What is equilibrium quantity?17. What will happen to equilibrium price of a commodity if its demand increases and supply decreases?

3/4 Marks Question

1. Explain what happens to the profits in the long run if the firms are free to enter the industry.

2. Explain what happens to losses in the long run if the firms are free to leave the industry.3. Distinguish between monopoly and perfect competition.4. Why is a firm under perfect competition a price taker?5. State 3 features of monopolistic competition. Draw average revenue curve of a firm in this

market.6. State 2 features common to competition and perfect competition. Explain any one.7. Why is the average revenue curve of a monopolist less elastic than the average revenue

curve of a firm under monopolistic competition? Explain.8. Draw the average revenue curve of a firm under monopoly and perfect competition. Explain

the difference in these curves. if any.9. Give the meaning of collusive oligopoly. Explain any two features of oligopoly.10. Why are firms said to be interdependent in an oligopoly market?11. Why is the number of firms small in oligopoly?12. Explain the implication of non-price competition in an oligopoly market.13. Distinguish between co-operative and non-cooperative oligopoly.14. There are no barriers in the way of firms leaving or joining industry in a perfectly

competitive market. Explain the significance of this feature.15. Explain why the equilibrium price of a commodity is determined at that level of output at

which its demand equals its supply.16. Cigarette smoking is injurious to health. How can the government reduce its consumption

but only through the normal market forces .Explain the chain effects of government’s action.

17. Explain the effects of maximum price ceiling on the market of a good . Use a diagram.18. Explain the effect of increase in income of buyers of a normal commodity on its equilibrium

price.19. Market for an essential item of consumption is in equilibrium but the equilibrium price is

too high for the common man. What can the government do to bring down its market price

27

but only through the normal market forces? Explain the chain of effects of the government’s action.

6 Marks Question

1. What are the characteristics of a perfectly competitive market?2. Explain the 3 features of monopoly market.3. Explain the implications of the following:

a) The feature differentiated products under monopolistic competitionb) The feature large number of sellers under perfect competition.

4. What is the effect on equilibrium price and quantity if increase in market demand is less than increase in market supply? Use diagram.

5. How is equilibrium price determined? Explain with the help of a schedule.6. How will a fall in the price of tea affect the equilibrium price of coffee? Explain the chain of

effects.7. X and y are complementary goods. Explain the sequence of effects of a fall in the price of x

on the equilibrium price and quantity of y.8. Market for a good is in equilibrium. Explain the chain of reactions in the market if the price

is a) higher than equilibrium price b) lower than equilibrium price.

9. Explain the effect of change in supply of good on its equilibrium price and quantity.10. Explain with the help of a diagram how rationing and black marketing can emerge in a price

control system.

UNIT 5: National Income and related aggregates

3/4 Marks Question

1) Distinguish between stocks and flows. Give two examples of each.

2) Calculate ‘Sales’ from the following data:

Items (Rs. In Lakh)

(i) Subsidies 200

(ii) Opening stock 100

(iii) Closing stock 600

(iv) Intermediate consumption 3,000

28

(v) Consumption of fixed capital 700

(vi) Profit 750

(vii) Net value added at factor cost 2,000

3) Define externalities. Give an example of negative externality. What is its impact on welfare?

4) What are externalities? Give an example of a positive externality and its impact on welfare

of the people.

5) Giving reasons explain how should the following be treated in estimation of national

income:

(i) Expenditure by a firm on payment of fees to a chartered accountant.

(ii) Purchase of refrigerator by a firm for own use.

6) Giving reason explain how should the following be treated in estimating national income:

(i) Expenditure on fertilizers by a farmer.

(ii) Purchase of tractor by a farmer


i) Payment of bonus by a firm

ii) Payment of interest on a loan taken by an employee from the employer.


i) Interest paid by banks on deposits by individuals.

ii) National debt interest.

9) Giving reasons, explain how the following are treated in estimating national income

(i) Wheat grown by a farmer but used entirely for family's consumption

(ii) Earnings of the shareholders from the sale of shares.

(iii) Expenditure by government on providing free education

10) Giving reasons, explain how the following are treated in estimating national income:

(i) Purchase of a truck to carry goods by a production unit.

(ii) Services rendered by family members to each other.

11) Explain the circular flow of income.

12) How will you treat the following while estimating national income of India? Give reasons for

29

your answer.

i) Dividend received by a foreigner from investment in shares of an Indian company.

ii) Profits earned by a branch of an Indian bank in Canada.

iii) Scholarship given to Indian students studying in India by a foreign company.


income:

(i) Festival gift to employees

14) Calculate ‘national income’ and ‘net national disposable income’ from the following data:

(Rs. In

crores)

i) Current transfers from government 35

ii) Private final consumption expenditure 500

iii) Net current transfers from the rest of the world (-) 10

iv) Government final consumption expenditure 150

v) Net factor income from abroad (-) 20

vi) Net domestic capital formation 100

vii) Net indirect tax 120

viii) Net exports 50

15) Distinguish between stocks and flows. Give two examples of each.

16) Calculate ‘Sales’ from the following data:

Items (Rs. In Lakh)

(i) Subsidies 200

(ii) Opening stock 100

(iii) Closing stock 600

(iv) Intermediate consumption 3,000

(v) Consumption of fixed capital 700

30

(vi) Profit 750

(vii) Net value added at factor cost 2,000

17) Define externalities. Give an example of negative externality. What is its impact on

welfare?

18) What are externalities? Give an example of a positive externality and its impact on

welfare of the people.

19) Giving reasons explain how should the following be treated in estimation of national

income:

a. Expenditure by a firm on payment of fees to a chartered accountant.

b. Purchase of refrigerator by a firm for own use.

20) How will you treat the following while calculating domestic product of India? Give


(i) Profits earned by a foreign company in India.

(ii) Salary of Indian residents working in Russian Embassy in India.

21) What are non-monetary exchanges? Give an example. Explain their impact on use of gross

domestic product as an index of welfare of the people.

22) How will you treat the following while calculating domestic product of India? Give reasons

for your answer.

a. Profits earned by a foreign company in India.

b. Salary of Indian residents working in Russian Embassy in India.

23) What are non-monetary exchanges? Give an example. Explain their impact on use of gross

domestic product as an index of welfare of the people.

24) If Real GDP is Rs.200 and Price Index (with base = 100) is 110, calculate Nominal GDP.

25) If the Real GDP is Rs.300 and Nominal GDP is Rs.330, calculate Price Index (base=100)

31

26) Should the following be treated as final expenditure or intermediate expenditure? Give


i) Purchase of furniture by a firm

ii) Expenditure on maintenance by a firm.

27) Giving reason, explain how should the following be treated while estimating national

income:

i) Expenditure on free services provided by government

ii) Payment of interest by a government firm

28) Giving reason, explain how the following should be treated while estimating national

income:

i) Payment of excise duty by a firm

ii) Payment of interest by a firm

29) How should the following be treated while estimating national income? Give reasons for

your answer.

i) Festival gift from an employer

ii) Rent free house from an employer

30) Find Net Value Added at Market Price:

(Rs. In crores)

i) Depreciation (Rs.) 700

ii) Output sold (units) 900

iii) Price per unit of output (Rs.) 40

iv) Closing stock (Rs.) 1,000

v) Opening stock (Rs.) 800

vi) Sales tax (Rs.) 3,000

vii) Intermediate cost (Rs.) 20,000

31) Calculate 'private Income' from the following data:

(Rs. In crores)

(i) National debt interest 30

32

(ii) Gross national product at market price 400

(iii) Current transfers from government 20

(iv) Net indirect taxes 40

(v) Net current transfers from the rest of the world (-) 10

(vi)Net domestic product at factor cost accruing to government 50

(vii) Consumption of fixed capital 70

32) Giving reasons classify the following into intermediate products and final products:

(i) Furniture purchased by a school (4)

(ii) Chalks, dusters, etc. purchased by a school.

33) Giving reasons classify the following into intermediate products and final products.

(i) Computers installed in an office. (4)

(ii) Mobile sets purchased by a mobile dealer

34) Giving reason identify whether the following are final expenditures of intermediate

expenditure:

(i) Expenditure on maintenance of an office building.

(ii) Expenditure on improvement of a machine in a factory.


income.

(i) Family members working free on the farm owned by the family.

(ii) Payment of interest on borrowings by general government.


income:

(i) Social security contributions by employees.

(ii) Pension paid after retirement.


income:

(i) Expenditure on maintenance of building.

(ii) Expenditure on adding a floor to the building.

6 Marks Question

33

1. Calculate National Income and Personal Disposable Income from the following:

(Rs. In crores)

i) Personal tax 150

ii) Net imports (-) 10

iii) Private final consumption expenditure 700

iv) Private income 600

v) Undistributed profit 20

vi) Net domestic capital formation 120

vii) Government final consumption expenditure 200

viii) Net factor income to abroad (-) 5

ix) Corporation tax 100

x) Net indirect tax 105

2. Calculate ‘Net domestic Product at Factor Cost’ and ‘Net National Disposable Income’:

(Rs. In crores)

i) Net factor income to abroad 30

ii) Sales 2000

iii) Subsidies 20

iv) Consumption of fixed capital 50

v) Net current transfers to abroad (-) 10

vi) Closing stocks 100

vii) Opening stocks 200

viii) Intermediate costs 1000

ix) Indirect tax 150

3. Find out (i) Gross National Product a Market Price and (ii) Net Current Transfers to Abroad.

(Rs. Crore)

i) Private final consumption expenditure 1000

ii) Depreciation 100

34

iii) Net national disposable income 1500

iv) Closing stock 20

v) Government final consumption expenditure 300

vi) Net indirect tax 50

vii) Opening stock 20

viii) Net domestic fixed capital 110

ix) Net 15

x) Net factor income to abroad (-)10

4. From the following data, calculate (a) Gross Domestic Product a Factor Cost and (b) Factor

Income to Abroad:

(Rs. In crores)

i) Compensation of employees 800

ii) Profits 200

iii) Dividends 50

iv) Gross national product at market price 1,400

v) Rent 150

vi) Interest 100

vii) Gross domestic capital formation 300

viii) Net fixed capital formation 200

ix) Change in stock 50

x) Factor income from abroad 60

xi) Net indirect taxes 120

5. How should the following be treated in estimating national income of a country? You must

give reason for your answer.

(i) Taking care of aged parents

(ii) Payment of corporate tax

(iii) Expenditure on providing police services by the Government.

6. Calculate ‘Net National Product at Market Price’ and ‘Gross National Disposable Income’

from the following:

35

Items (Rs. In Arab)

(i) Closing stock 10

(ii) Consumption of fixed capital 40

(iii) Private final consumption expenditure 600

(iv) Exports 50

(v) Opening stock 20

(vi) Government final consumption expenditure 100

(vii) Imports 60

(viii) Net domestic fixed capital formation 80

(ix) Net current transfers to abroad (-)10

(x) Net factor income to abroad 30

7. Giving reason, explain how should the following be treated in estimating gross domestic

product at market price.

(i) Fees to mechanic paid by a firm

(ii) Interest paid by an individual on a car loan taken from a bank

(iii) Expenditure on purchasing a car for use by a firm.

8. How should the following be treated in estimating national income of a country? You must

give reason for your answer.

(iv) Taking care of aged parents

(v) Payment of corporate tax

(vi) Expenditure on providing police services by the Government.

9. Calculate ‘Net National Product at Market Price’ and ‘Gross National Disposable Income’

from the following:

Items (Rs. In Arab)

(i) Closing stock 10

(ii) Consumption of fixed capital 40

(iii) Private final consumption expenditure 600

(iv) Exports 50

36

(v) Opening stock 20

(vi) Government final consumption expenditure 100

(vii) Imports 60

(viii) Net domestic fixed capital formation 80

(ix) Net current transfers to abroad (-)10

(x) Net factor income to abroad 30

UNIT 6: Money and Banking

1 Mark Question1. Define money.2. Define money supply.3. What is bank money?4. What are time deposits? 5. State the components of money supply. 6. What is a central bank?

3/4 Marks Question1. Explain the problem of double coincidence of wants faced under barter system. How has money solved it?2. Explain the significance of “medium of exchange” function of money. 3. Define money supply and explain its components. 4. Explain the “store of value” function of money5. How does central bank control credit creation by commercial banks through open market operation? Explain 6. Explain the meaning of “open market operations”. How does the central bank use it for controlling credit creation by commercial bank?7. Explain any two methods of credit control used by central bank.8. Explain the controller of credit function of a central bank.9. What is repo rate? How is it used by the central bank to control credit creation by commercial banks?10. Explain the distinction between ‘Statutory liquidity ratio’ and ‘Legal reserve ratio’.11. Differentiate between central bank and commercial bank.

37

12. Government of India has recently launched “Jan Dhan Yojna” aimed at every household in the country to have at least one bank account. Explain how deposits made under the plan are going to affect national income if the country. 13. Currency is issued by the central bank, yet we say that commercial banks create money. Explain. How is this money creation by commercial bank likely to affect the national income? Explain. 14. Why do we say that commercial bank’s create money while we also say that the central bank has the soul right to issue currency? Explain .what is the likely impact of money creation by the commercial banks on national income.

6 Marks Question

1. Explain any two functions of money.

UNIT 7: Determination of income and employment

1 Mark Question

1. If MPC = 1, what is the value of multiplier ?2. What is Consumption function ?3. What is Autonomous Consumption ?4. Give the meaning of Inflationary gap / Give the meaning of excess demand in an economy.5. Give the meaning of Deflationary gap .6. Give the meaning of full employment equilibrium.7. What is underemployment equilibrium ?8. Give the meaning of involuntary unemployment.9. What is equilibrium level of National income ?

3/4 Marks Question

1. Govt raises its expenditure on producing public goods. Which economic value does it reflect ?2. How is equilibrium level of income and employment is established through AD and AS ( using

C+I approach) ?

38

3. What changes will take place to bring an economy in equilibrium if : (i) planned savings are greater than planned investment and (ii) planned savings are less than planned investment ?

4. Distinguish between APS and MPS. The value of which of these two can be negative and when ?

5. True / False ? Give reasons.a) APS is always greater than zero.b) Value of APS can never be less than zero.c) When APS < 0 , MPS will also be negative. d) MPS can never be negative.e) APS can never be greater than one.f) The sum of APC and MPC is always equal to one. g) There is an inverse relationship between MPS and investment multiplier.h) If the ratio of MPC and MPS is 4 : 1 , the value of investment multiplier will be 4.

6. Complete the table :Income Consumption MPS APS0 4050 70100 100150 120

7. Given that NI is Rs 80 crore and Consumption expenditure is Rs 64 crore. Find out APS. When income rises to Rs 100 crore and Consumption expenditure to Rs 78 crore , what will be the APC and MPC ?8. Outline the steps taken in deriving saving curve from the consumption curve. Use diagram.

6 Marks Question

1. From the following calculate : (i) Equilibrium level of NI and (ii) Consumption expenditure at equilibrium level of NI. (a)C = 500 + 0.75Y is the consumption function and (b) investment expenditure is 5000.

2. Find NI from the following : (i)Autonomous consumption = Rs 100 , (ii) MPC = 0.80 , (iii) Investment = Rs 50

3. As a result of increase in investment by Rs 125 crores, NI increases by Rs 500 crores. Calculate MPC.

4. In an economy , an increase in investment leads to increase in national income which is three times more than the increase in investment. Calculate MPC.

5. An economy is in equilibrium. Calculate MPS from the following : (i) NI = 1000 , (ii) Autonomous consumption = 100 and (iii) Investment = 120

39

6. An economy is in equilibrium. Find autonomous consumption from the following : (i) NI = 1000 , (ii) MPC = 0.8 , (iii) Investment expenditure = 100.

7. An economy is in equilibrium. Calculate Investment expenditure from the following : (i) NI = 1000 , (ii) MPS = 0.20 , (iii) Autonomous Consumption = 100.

8. In an economy , with every increase in income , 10% of the rise in income is saved. Suppose the fresh investment of Rs 120 crores takes place in the economy. Calculate (i) change in income and (ii) change in consumption.

9. In an economy the equilibrium level of income is Rs 12000 crore. The ratio of MPC and MPS is 3:1. Calculate additional investment needed to reach a new equilibrium level of income of Rs 20000 crore.

10. Explain the role of the following in correcting inflationary gap / Deflationary gap in an economy : (i)Bank Rate , (ii) Open market operations , (iii) Legal reserves, (iv) Govt

expenditure , (v) Reverse Repo rate , (vi) Repo rate.

UNIT 8: Government budget and economy

1 Mark Question

1. Define a government budget.2. What is tax? 3. What is indirect tax? 4. Give two examples of revenue expenditure.5. Give two examples of indirect taxes.6. What is revenue deficit? 7. Give two examples of capital receipts in a government budget. 8. What one step can be taken through market to reduce the consumption of a product

harmful for health?9. What is direct tax?10. Give one example of each of direct and indirect tax.11. State two sources of non tax revenue receipts.12. Define capital expenditure?13. What is primary deficit?14. Define fiscal deficit?

40

15. Direct tax is called direct tax because it is collected directly froma) the producer on goods producedb) the seller on good sourcec) the buyers of goodd) The income earners.

16. Primary deficit in a government budget is a) revenue expenditure – revenue receiptb) total expenditure – total receiptc) revenue deficit – interest paymentsd) fiscal deficit - interest payments

17. Which one of these is a revenue expenditurea) purchase of sharesb) loans advancedc) subsidiesd) expenditure on acquisition of land.

18. The non tax revenue in the following isa) export dutyb) import dutyc) dividendd) excise

19. Borrowing government budget isa) revenue deficitb) fiscal deficitc) primary deficitd) deficit In taxes

3/4 Marks Question

1. Distinguish between revenue deficit and fiscal deficit. 2. Distinguish between direct tax and indirect tax. Give one example each.3. Explain the “price stability” function of a government budget.4. Distinguish between:

a) Capital expenditure and revenue expendituresb) Fiscal deficit and primary deficit.

5. State three sources each of revenue receipts and capital receipts in a government budget.

6. Distinguish between Primary deficit and Revenue deficit.7. State three objectives of budgetary policy.

41

8. Is the following revenue expenditure or capital expenditure in the context of government budget? give reason

I. Expenditure on collection of taxes.II. Expenditure on purchasing computer.

9. Giving reason whether the following is a revenue expenditure or capital expenditure in a government budget?

I. Expenditure on scholarship.II. Expenditure on building a bridge.

10. Is the following revenue receipt or capital receipt in the context of government budget and why?

I. tax receiptII. disinvestment

11. Giving reason ,categorise the following into revenue receipts and capital receipts:i) Recovery of loansii) Corporation taxiii) Dividends on investments made by government and iv) sale of a public sector undertakings

12. Giving reason ,categorise the following items into revenue expenditure and capital expenditure:i) Subsidiesii) Grants given to the state governmentsiii) Repayment of loansiv) construction of school building

13. Explain revenue deficit in a government budget? What does it indicate?14. From the following data about a government budget, find out a) Revenue deficit,

b) Fiscal deficit and c) Primary deficit:

Items (Rs in arab)

i) Tax revenue 47ii) Capital receipts 34iii) Non- tax revenue 10iv) Borrowings 32v) Revenue expenditure 80vi) Interest payments 20

15. From the following data about a government budget, find out a) Revenue deficit, b) Fiscal deficit and c) Primary deficit:

Items (Rs. in arab)i) Capital receipts net of borrowings 95

42

ii) Revenue expenditure 100iii) Interest payments 10iv) Revenue receipts 80v) Capital expenditure 110

16. From the following data about a government budget, find out a) Revenue deficit, b) Fiscal deficit and c) Primary deficit:

Items (Rs in arab)i) Plan Capital expenditure 120ii) Revenue expenditure 100iii) Non-Plan Capital expenditure 80iv) Revenue receipts 70v) Capital receipts net of borrowings 140vi) Interest payments 30

17. Government raises its expenditure on producing public goods. Which economic value does it reflect? Explain.

18. Tax rates on higher income group have been increased. Which economic value does it reflect? Explain.

19. Government has started spending more on providing free services like education and health to the poor. Explain the economic value it reflects?

20. Explain the role of government budget in fighting inflationary and deflationary tendencies.

6 Marks Question

1. Distinguish between Primary deficit and Revenue deficit?2. Explain the following objectives of government budget?

a. Allocation of resourcesb. Reduction in inequalities of income

3. Distinguish between direct and indirect tax?

UNIT 9: Balance of Payments1 Mark Question

1. What are the merits of fixed exchange rate?2. What are the merits of flexible exchange rate? 3. What is managed floating exchange rate?4. What is devaluation? 5. Define a government budget.

43

3/4 Marks Question

1. How can RBI help in bringing down the foreign exchange rate which is very high?2. Other things remaining unchanged, when in a country the price of foreign currency rises, NI

is : (i) Likely to rise , (ii) Likely to fall , (iii) Likely to rise and fall both , (iv) Not affected.3. Where ‘borrowing from abroad’ is recorded in BOP accounts? Give reasons.4. Distinguish between Autonomous and Accommodating Transactions of balance of payment

account. 5. Explain the effect of appreciation of domestic currency on imports.6. Distinguish between Balance of trade and Balance on current account.7. When foreign exchange rate in a country is on the rise, what impact is it likely to have on

imports and how?8. Recently Government of India has doubled the import duty on gold. What impact is it likely

to have on foreign exchange rate and how? 9. Visits to foreign countries for sightseeing etc. by the people of India is on the rise. What will

be its likely impact on foreign exchange rate and how? 10. How does giving incentives for exports influence foreign exchange rate?11. Explain the meaning of balance of payment deficits. 12. Explain the effect of depreciation of domestic currency on exports.13. How can FDI affect the price of foreign exchange? 14. Where will sale of machinery to abroad e recorded in the BOP accounts? Give reasons.

44